ࡱ> ܥhc e3908888888888888 8 881888888888888888'9X9V8888888888888888888888`Ɉ.t8888888888Issue 33: Incapacitated Scotland Author: Margaret and Jim Cuthbert Incapacitated Scotland Analysis by Margaret and Jim Cuthbert shows that if the governments policy on Incapacity Benefit isnt matched with local economic assistance, unemployment is going to rise. On 3 January 2006 John Hutton, Secretary of State for Works and Pensions, wrote to MPs in the 100 constituencies in Britain with the highest number of claimants of incapacity benefit/severe disability allowance. His purpose was to show them a clear link between high numbers of people claiming incapacity benefit and deprivation ahead of the publication of the governments plans for the reform of the incapacity benefit system; his intention, presumably, was to counter their potential opposition to any changes proposed in the system. Over recent months, the government has emphasised that 2.7 million on Incapacity Benefit at a cost of over 7.5 billion cannot continue, both because of the tremendous cost to the taxpayer and because those claiming IB tend to get stuck in a trap and can find themselves out of employment thereafter. Here we argue the need for effective regional economic development policies to complement the governments proposed changes to Incapacity Benefit. First of all, it is worth looking in a little more detail at the make-up of the headline 2.7 million figure. This figure is actually the figure for total IB and Severe Disability Allowance claimant. This claimant figure includes (a) those actually receiving incapacity benefit, that is beneficiaries, (b) around 900,000 who have claimed, but, because of having insufficient National Insurance contributions, are not receiving, and (c) a number who have failed the medical test and are appealing. Out of the total of 2.7 million claimants, the number of actual beneficiaries is in fact 1.7 million, with around 300,000 of these being sufficiently incapacitated that they receive Severe Disability Allowance. Why the government should express its policy proposals in terms of the more alarming 2.7 million claimant figure, rather than the more realistic 1.7 million IB/SDA beneficiary figure, and similarly why they have included SDA recipients, we can only guess. What does seem clear, however, is that the 900,000 people in the category of claimants but not beneficiaries of IB are going to pose a particular problem for the Governments new policy. There are three reasons for this. First, because the government has less financial leverage over people in this category; second, because, given that this group has a particularly poor employment history, (having failed to accumulate enough NI contributions to qualify for receipt of IB), one might expect that they are going to find it even more difficult to enter the job market; and thirdly, this group tends to be concentrated in areas where the labour market is weak. The government is indeed correct that recipients of IB tend to remain on the benefit for a long time. While surveys show that those moving on to incapacity benefit hope to return to work quickly, time series statistics indicate that a very large number do in fact remain on it for years. In Scotland, for example, 68 per cent of IB beneficiaries registered in May 2005 had been receiving IB benefit for more than three years; for Britain the percentage is 67 per cent. However, looking specifically at Glasgow, the position is worse at 71 per cent. The governments proposals on incapacity benefit are of particular relevance to Scotland, because Scotland has both a disproportionately large number of IB claimants, and a relatively depressed employment market compared to Britain as a whole. As regards IB, Scotland has 11.7 per cent of all IB claimants in Britain although it has only 8.5 per cent of the population moreover, 20 of the 100 constituencies of the Hutton letter are in fact in Scotland. The IB claimant rate as a percentage of the resident working population is 9.7 per cent in Scotland (and 15.9 per cent in Glasgow), compared to 7.5 per cent in Britain as a whole. As regards unemployment, the unemployment claimant rate is 2.8 per cent in Scotland and 4.1 per cent in Glasgow compared with 2.3 per cent in the Britain. It follows that in Glasgow, no less than 20 per cent of the working age population is either unemployed or an IB claimant (for males, although the percentage has been falling, it is 25 per cent). These figures indicate how unemployment rates alone give a very distorted view of the labour market. It is also worth looking at the association between unemployment claimant rates and incapacity benefit claimant rates in local authority areas in Scotland. The chart shows how male unemployment rates and incapacity benefit rates (as a percentage of the working population) move together in each of the local authority areas in Scotland. There is a strong positive association (in statistical terms a correlation of 0.88) with the higher the unemployment rate, the greater the percentage claiming incapacity benefit. The picture for women is similar. The most likely explanation of what we can see in the chart is that both incapacity benefit and unemployment are positively associated with a third factor, namely, the buoyancy of the local labour market. If so, then merely acting to drive down IB, in the absence of positive action on the local labour market, will just drive up unemployment. Overall, the proposed policy on incapacity benefit will have little or no positive effect on productive economic activity, but it will have the potential cost of considerable psychological and financial stress to those thrust from the relative security of IB into the exigencies of claiming Jobseekers Allowance in a poor local employment market. This conclusion is in line with the research of Professor Steve Fothergill of Sheffield Hallam University which suggests that incapacity benefit numbers are to a large extent masking the true level of unemployment. His latest report, with John Grieve Smith of Cambridge, argues that the large numbers of incapacity benefit claimants are the result of the failure of government regional policies to reverse the decline of Britains manufacturing and industrial regions. Thus government efforts to increase employment by reforming incapacity benefit are likely to have limited impact unless effective regional policy is introduced to create jobs in the more depressed parts of Britain. What we believe will be absolutely crucial to the success of the governments policy is whether it can take effective action to improve the buoyancy of local employment markets, at the same time as individuals are encouraged to come off IB. So we have to consider what efforts the government has been, and is, making to improve the employment situation in Scotland, and whether that effort is sufficient. Of course, in one sense almost everything the government does will have an impact on the buoyancy of the employment market in Scotland the very act, for example, of spending the 25 billion in the control of the Scottish Executive, or the 37 billion identifiable expenditure spent on behalf of Scotland by all government departments will have a huge impact on the job market in Scotland. But given that we are concerned here with policies which are primarily intended to improve employment opportunities in unemployment blackspots, then we would expect the primary effects to flow from the governments expenditure on the functions of employment, and enterprise and economic development. And when we do look in detail at what the government spends on these functions, then things are, unfortunately by no means what they seem at first sight. Take employment. On the basis of the official figures, the government appears to be making particular efforts in Scotland: for example, according to the Scottish Executives Government Revenue and Expenditure in Scotland (GERS), in 2003-04 the government spent no less than 181 per head on employment policies compared with 74 per head for the UK as a whole. Before we applaud too loudly, lets probe beneath the surface of these figures. Under the Freedom of Information act (FoIA), we obtained the fully detailed database of financial information underlying the published GERS figures. Examination of this detailed data revealed the following points within the total of 913 million recorded in GERS as being spent in employment in Scotland: a) The entire budget of Scottish Enterprise (461.4m) has been allocated to employment. The Treasury has accepted that this is not satisfactory and propose to put the entire budget into Enterprise and Economic Development as from next year. b) Included in this total is expenditure of 57.2 million by the Department of Works and Pensions under European Social Fund spend. However, ESF is a devolved matter, and inclusion of this term is simply a mistake. c) 190.3 million of the total relates to the administration by the DWP attributed to the employment programme. However, this figure in fact includes all administration expenditure by the DWP on programmes for those of working age, such as Income Support, Statutory Sick Pay, and Maternity Allowance. d) Almost 1m spent by DfES should not be included as this is on a devolved function. DfES spend on this item is purely for England (and/or Wales). Correcting for these errors, a more reasonable estimate of expenditure on employment would be 55 per head. In fact, much of this remaining expenditure is to assist the restructuring of the DWP, and is not for programmes or initiatives which will directly assist the creation of employment. This figure of 55 per head is very different from the 181 per head quoted in GERS. (Correspondingly the UK per capita figure should also be significantly reduced to around 44 per head). Now looking at Enterprise and Economic Development; the government spends almost 200 per head on this programme in Scotland. Some of this represents expenditure on specific schemes such as coal health liabilities, support for the Post Office, and support for British Nuclear Fuels. While perfectly valid, and indeed important objectives, these schemes do not in themselves target Scotlands regional development. Significant other parts of the Enterprise programme, such as DTI administration, the small firms guarantee scheme and consumer protection, mirror expenditure which occurs throughout the UK. Again, these are important objectives, but do not give Scotland a specific economic boost. There are, of course, important parts of the programme, such as regional selective assistance, European programmes, and parts of the Scottish Enterprise and Highlands and Islands Enterprise budgets which do boost Scotlands relative economic position. But overall, probably only around 70 per cent of the enterprise programme can be regarded as targeted at giving Scotland a relative advantage in creating and sustaining businesses. It is clear that the governments efforts in Scotland as regards their programmes for employment, and for enterprise and economic development, represent a good deal less of effective expenditure than the headline figures might appear to suggest. This is likely to be one of the factors which help to explain why, despite the economy being Jack McConnells expressed top priority, Scotlands underperformance relative to the rest of the UK has stubbornly failed to improve. It is, of course, not the only factor: Scotland also faces other inherent and endemic problems, such as the legacy of its heavy industrial past. Nor is it helpful for Scotland to be within the UK monetary union at a chronically unsuitable interest rate. But from the point of view of the governments current initiative on incapacity benefit, the key message is that current efforts to improve local employment markets are not coping adequately even with the present situation - far less with the prospect of significant numbers of former IB recipients looking for work, primarily in economic blackspots. Unless the government parallels its new IB policy with a much more pro-active and effective employment policy in depressed local areas, then its IB policy is likely to be a failure - and a failure won at the expense of significant stress and hardship for some inherently vulnerable members of the community. Margaret Cuthbert is an economist. Jim Cuthbert was formerly Chief Statistician at the Scottish Office. !.A!(CYZ[\    ?@AB./01$$$$$$$$%%%%''''''''x)y)z){)----O3P3Q3R33333u]V]VU]UPb cC!CZ\  @B/1$$$$%%''''y){)--P3R333dd"K@Normala c(@"( Heading 2ddU]c$"A@"Default Paragraph Font O face1dd]OStrongU0333@1Times New Roman Symbol "Arial"h.Rf0Rf 0(UV Issue 33: Incapacitated ScotlandMargaret CuthbertMargaret Cuthbert !)Root Entry F`Ɉ.t WordDocument9CompObjjSummaryInformation(  FMicrosoft Word Document MSWordDocWord.Document.89qOh+'0 0< d p |!Issue 33: Incapacitated Scotland1Margaret Cuthbert1 NormalMargaret Cuthbert10.Microsoft WoDocumentSummaryInformation8   FMicrosoft Word Document MSWordDocWord.Document.89qxselfmvU !Issue 33: Incapacitated Scotlandrd for Windows 95\@G@lt@.t 0(՜.+,0@HX` hp xselfmvU !Issue 33: Incapacitated Scotland